| NOTICE: I regret to inform you that I will probably no longer to be able to
provide this column on a daily basis after the end December, possibly even
sooner. I may occasionally provide commentary, but not on an regular,
daily basis. Hopefully I will be able to resume daily service at some
point. The web site and archive will remain at least through May.
Click
here if you wish to be notified by email if and when service resumes. Basically, I have been living off capital for the past four years (stock profits from "the boom"), but my capital burn rate for my living expenses has significantly exceeded my rate of return, even for the past year. The result is that I regretfully will be forced to seek a full-time "normal" job and hence I will be unlikely to be able to devote the five or more hours that go into this column every day. I had hoped that the market would bounce back more strongly so that my return would exceed my burn rate, but that didn't happen and I had burned through too much of my capital base by the time the market did start to take off in October 2002. I had also hoped that I would be able to build interest in this site via word of mouth, and that really didn't happen either. I would have to have ten times as many readers and have each of them pay the full suggested rate to make the site financially viable on its own. There is simply too much competition in the investment newsletter/web site business to expect that kind of interest. My thanks to all those loyal readers who have paid for their usage of the site. -- Jack Krupansky -- still The Unrepentent Optimist - 12/6/03 |
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Despite the positive news about Saddam Hussein, Monday was a classic example of traders running up stocks in pre-market trading and reaching the point of buying exhaustion even before the market opened. The result was that there was virtually no buying interest once the market opened, so traders quickly reversed and bet on the downside. And once that initial slide starts, the shorts really pile on. A lot of people decided to sell into the early rally, treating it as the short-term trading phenomenon that it undoubtedly was. The economic data was too mixed to have a dramatic impact on the market, with a decent manufacturing report and a mediocre report from Wal-Mart (WMT).
Nasdaq opened 30 points higher, but closed 31 points lower, an intra-day decline of 61 points. That is a steep decline, but is more a measure of the volatility that the pre-market trading inspired than a statement about perceptions about the market by investors.
There was very little in the way of attempts to recover for Nasdaq all day long. This was a classic “throw in the towel” sell-off, as people simply wait for the dust to settle.
There was no fundamental reason for the steepness of the decline. Momentum speculators love to bet on the downside whenever they see buying volume peter out, and once they jump on, more follow them. Once buyers see such a cascading snowball develop, they simply sit back and wait out the selling.
It’s also possible that there could have been a modest amount of real selling due to stock mutual fund redemptions since mutual fund inflows are uneven and can lead to days of dramatic inflows and days of dramatic outflows. It wouldn’t have to be a lot of selling, just enough to keep the bias negative so that traders and speculative shorts feel comfortable increasing their bets on the downside.
Nasdaq volume was moderate (1.81 billion shares). Breadth was very strongly negative, with 2.38 gainers for each loser. This would have been a strong sell-off, except that volume wasn’t very heavy.
According to Thomson Financial I-Watch, institutional investors were net sellers of Lucent (LU), but net buyers of Sun (SUNW), Oracle (ORCL), Intel (INTC), Microsoft (MSFT), Applied Materials (AMAT), Cisco (CSCO), JDS Uniphase (JDSU), and HP (HWP). Institutions were clearly buying the dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The New York Fed Empire State Manufacturing Survey for December registered a modest decline in the General Business Conditions index (now positive for eight consecutive months) but is still indicating strongly positive conditions and still near the record pace of November. This was a slightly negative, mixed, but also somewhat positive report. The pace of improvement declined, but there was still significant improvement. The NY Fed said that “conditions for New York manufacturers improved substantially in December.” The pace of new orders declined moderately sharply, but they are still growing strongly. The pace of shipments increased modestly. The pace of unfilled orders rose sharply, which is very good news. A healthy backlog helps to smooth out economic performance. Employment continues to expand, and at a modestly faster pace. The average employee workweek continues to expand and at a moderately faster pace. Even better, employment and the average workweek were simultaneously positive for a third consecutive month. The six-month expectations indicated an even greater degree of optimism. Expectations for general business conditions rose only slightly, but were already at a very high level. Expectations for new orders rose modestly. Expectations for shipments rose modestly. Expectations for unfilled orders are still reasonably positive, but significantly less than last month. Expectations for employment are moderately sharply higher. Expectations for average employee workweek are very modestly higher. Expectations for capital expenditures rose sharply to “its highest level on record.” Half of the survey respondents expect to increase capital spending over the coming six months and only 8% expect to cut spending.
The Wal-Mart (WMT) Weekly Retail Sales Update indicated that sales are expected only to reach the lower end of its December forecast of 3-5% growth. This was a negative report. Delayed holiday shopping and increased purchases of gift cards were blamed. The number of shoppers declined from a year ago. Note that sales of gift cards are not recorded as sales revenues until they are redeemed, possibly not until January or later. The strongest product categories were pharmaceuticals, toys, infants’ merchandise, girls’ apparel, and paint.
NOTICE: I am still using the “old” VIX even though CBOE began offering the “new” VIX on September 22nd. The old VIX is based on options for the S&P 100 index whereas the new VIX is based on options for the more popular S&P 500 index. I’m still investigating how to switch over to the new VIX and how that relates to historical data.
The old CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, rose by 6.02% on Monday to 16.91, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). People were rather surprised that the market couldn’t rally in the face of good news about Saddam Hussein and in fact declined so sharply. The bears will continue to beat their drums about the market being filled with the kind of excessive complacency that frequently presages a dramatic market decline. I wouldn’t bet the farm on that outcome, but it is a yellow flag.
The new VIX rose by 5.00% on Monday to 17.23.
The Nasdaq-100 VIX (VXN) rose by 4.68% on Monday to 27.07.
The Nasdaq-100 After Hours Indicator had a positive tone for the Monday evening session, closing up 0.42 points. Oracle (ORCL) had a decent quarterly report. People realize that the “Saddam sell-off” was way overdone, but they’re also very cautious about this market.
[12/12/03] The fed funds futures market suggests that the Fed will leave the fed funds target rate unchanged for the rest of the year, but possibly raise the fed funds target rate by a quarter-point in June or July. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best.
The dollar fell modestly against the yen and the euro. The dollar is quite sound and no true investor should lose any sleep worrying about whether the dollar is ‘weak’ or ‘strong’ on any given day, week, month, quarter, or year.
The price of oil rose moderately, and remains moderately above the $32 “anxiety” level. In any case, the price of oil continues to be relatively well-behaved and no true investor should lose any sleep worrying about it.
The price of gold fell modestly. In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
I wouldn’t expect the capture of Saddam Hussein to have any dramatic near-term impact on the geopolitical situation. Any longer-term impact will initially be too subtle to discern in coming months.
[7/29/03] The relative calm continues. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
I wouldn’t expect the capture of Saddam Hussein to have any dramatic near-term impact on the global war on terror. Any longer-term impact will initially be too subtle to discern in coming months.
[7/29/03] The eerie calm continues. There may continue to be attacks or alleged attacks abroad, but the U.S. “homeland” may be relatively immune, at least for now. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents or rumors of incidents.
The capture of Saddam Hussein will definitely have a near-term positive psychological impact on life in Iraq, but the impact on the big picture in Iraq is less than clear.
[7/29/03] As messy as the mopping-up phase of the war continues to be, great progress is indeed being made and there is little need for true investors to fret over the negative news that so captivates the media. Over time, the economic impact of the war will be a large net positive, even if there is some short-term negative impact.
[6/25/03] I have suspended my dollar-cost averaging investment plan since my exposure to the market is now about where I want it to be.
We could see a bounce as people realize how deeply oversold Nasdaq is on a short-term technical basis.
There could be a little positive reaction to Oracle’s decent quarterly report.
There are a few economic reports which could move the market, but not necessarily by very much.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -31 on day, only moderately above the lower end of my range of -40 to +90.
The confirmed bull market for Nasdaq that began on October 9, 2002 (and was confirmed on June 16, 2003) has run for 297 days (1 year and 47 days). The market now has a longer-term upwards bias despite near-term volatility. The path of the market through the end of the year is of course uncertain, but Nasdaq will most likely be moderately higher at the end of December than where it was at the beginning of November. Nasdaq should break above the 2,000 level fairly soon, so the question is whether we hit 2,100 or 2,250 by the end of the year. The important thing is that we continue to see inflows into equity mutual funds while the economy, revenues, and earnings continue to incrementally improve.
Nasdaq is 25 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 9 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 8 days off its 52-week intra-day high of 2,000.92 on December 3. We need to track all three of these intra-day highs until Nasdaq manages to close above them for at least a couple of days. Technical traders will be chattering about Nasdaq establishing a “triple top”, a rather bearish sign, so we do need to give this a relatively severe yellow flag.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 has run for 190 days. Nasdaq is 10 days off its closing peak of 1,989.82 on December 1 for the up-leg and for the overall post-October 2002 bull market. That closing peak is also the current 52-week closing high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, August 8 with an intra-day low of 1,640.88 is now 89 days old and 10 days off its closing peak. This is a minor leg nested within the larger leg that started on March 12 which is itself nested in the larger advance that started on October 9, 2002.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, October 24 with an intra-day low of 1,841.62 is now 36 days old and 10 days off its closing peak. This is a minor leg nested within the larger leg that started on August 8 which is itself nested in the larger advance that started on March 12. Multiple nested up-legs are a sign of deep strength in the market. This leg is still significantly broken, and it won’t be fully recovered until it closes above the previous peak of 1,976.37 for at least three days and sets a new closing peak at least 1% above that old peak (1,996.13).
The Nasdaq correction off the intra-day high of 1,992.27 on November 7 is now 25 days old. It reached an intra-day low of 1,878.07 on Friday, November 21, a decline of 114 points or 5.73%. It may be over, but we do need to see a new 52-week closing high above that old intra-day high.
We have a secondary correction off the intra-day high of 2,000.92 on December 3 that is now 8 days old. It reached an intra-day low of 1,887.46 on Wednesday, December 10, a decline of 113 points or 5.67%. It may be over or close to over, but we do need to see a new 52-week closing high above that old intra-day high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, November 21 with an intra-day low of 1,878.07 is now 16 days old and 10 days off its closing peak. The fact that Nasdaq is 83 points off the intra-day peak for this new leg indicates that this leg is still significantly broken, but not yet destroyed. Give it a couple more days before deciding for sure.
The potential up-leg of the Nasdaq advance that started on Wednesday, December 10 with an intra-day low of 1,887.46 and a bounce of 17 points into the close is now 4 days old and 1 day off its closing peak of 1,949.00 on December 12. The intra-day peak for this up-leg was 1,979.78 on December 15. We now wait for confirmation of this potential up-leg. We ignore Days 2 and 3 of the up-leg as long as a new intra-day low is not set. Then on Days 4 through 10 we look for a gain of at least 1% on volume higher than the previous day to signal confirmation. Monday was Day 4 with a decline of 31 points plus a decline of 61 points off the intra-day high, but the intra-day low for this leg still stands. Setting a new intra-day high for the leg and then closing very sharply off that high is a clear yellow flag.
The fact that Nasdaq is still 83 points off its recent 52-week intra-day high is a strong yellow flag and suggests that Nasdaq still hasn’t broken out of its near-term ‘consolidation’ phase. That does not mean that a full-blown correction is necessarily likely. We may still be in a short-term trading range. There may have been as much as 125 points of ‘trading froth’ at the peak, so we could see up to another 42 points of decline before a true correction might be indicated. Note that we’re still 40 points above the starting level of the most recent confirmed minor up-leg that started on November 21. The big wildcard remains mutual fund money flows – which were inflows of $1.8 billion in the most recent week, $2.6 billion in the previous week, $2.1 billion in the previous week, and $3.5 billion in each of the two weeks before that.
[11/5/03] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. The Q3 GDP report certainly convinced a lot of people that the economy is stronger than previously thought, but the cynics continue to promote the idea that the recent strength was almost solely due to short-term fiscal stimulus. I disagree. I believe that the economy would have been reasonably strong without the stimulus (ala Q2) and that we will see incremental improvement (compared to Q2) over the next four quarters. Some people will be shocked or raise alarm when Q4 comes in ‘weaker’ than the ‘artificially sweetened’ Q3, but there is no reason for alarm. That’s part of the zigzag process. The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: December 15, 2003 07:41:56 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology